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Sunday, May 20, 2012

17 more states join class action against Big5 and Apple, with new details revealed.

paidContent's Laura Hazard Owen reports that New York, Washington D.C., and 15 other states "have joined the e-book pricing class action suit against Apple, Macmillan and Penguin, bringing the total number of states involved so far to 31 (if you include DC and Puerto Rico). "

Owens' piece is a more in-depth look than we've seen with other news-site reports,
She adds that, unlike the Department of Justice (DOJ), the states seek monetary restitution for consumers and have already reached, as we've seen earlier, a settlement with Hachette, Simon & Schuster and HarperCollins.

With that amended complaint comes new information that's been made public, though it's not clear why it was redacted from the version filed in April. Much of that newly-public information (in the state's amended complaint) is found in the DOJ filing against Apple and the publishers, but new details include an e-mail from Steve Jobs that shows him becoming directly involved in the agency pricing negotiations "after [Apple's] Eddy Cue could not secure one of the Conspiring Publisher’s commitment directly from an executive."

We see yet another admission or confirmation that the publishers (and therefore presumably their authors) did make more money under the older, wholesale model despite many arguments made in forums by authors (who were asked by their publishers to join forum discussions) that the authors' revenue would be less under Amazon's traditional wholesaler arrangement.

' Macmillan CEO John Sargent attempted to negotiate with Apple’s Eddy Cue on a way to make agency pricing less painful for publishers (publishers actually make more money under the wholesale model, where they are paid based on a book’s retail list price, than from the agency model).

Asking Apple to help, then, by taking a reduced cut
On January 11, 2010, Sargent wrote to Apple in an e-mail, "Am thinking a possible way to ease the financial pain for the publishers and authors of moving to the agency model. Could you take a reduced cut on hardcover first releases (where we are presently making 14.00 in revenue and would make 9.00 under your assumptions)?"
Apple did not agree to take less than its customary 30 percent cut. '

Now, "hardcover" is mentioned there, but e-book 'suggested retail prices' were set by publishers under the traditional agreements (often set, in 2009, at $26), and Amazon, it's been explained often, usually paid about 50% of that publisher-set retail price to the publisher, EVEN when Amazon sold a bestseller e-book at $9.99, a price that made the Big5 nervous about the devaluing of their hardcover books.

Many authors did actually believe that they'd make less when an e-book was discounted by Amazon, and I think the publishers let many of them believe and say this in forums. There was a lot of rancor in the forums between some authors and customers as a result.

' [Apple's Eddy Cue] … was eloquent on why they would be a great partner, that price could and would be experimented with as Apple want [sic] to drive high revenues; that this would be for a one year term; that one major publisher (clearly RH) was out and that ne [sic] need the five majors in but maybe four. He said that he was sure he would close on two today and two tomorrow... '

Steve Jobs's e-mail
Jobs stepped in and wrote to a resistant executive at one of the "Conspiring Publishers," outlining the choices the publisher had, the only semi-attractive one being

' Throw in with Apple and see if we can all make a go of this to create a real mainstream ebooks market at $12.99 and $14.99. '

As we saw, the Big5 e-books actually came to sell between $12.99 and $19.99.

E-mails to Barnes & Noble - who became quite active in all this
After the Big5 and Apple agreed on the Agency model and pricing, the amended class action complaint, Owens explains (bold-facing mine):

'...says the five publishers “worked together to force” Random House to adopt it as well.

On March 4, 2010, in an exchange also identified in the DOJ’s filing, Penguin CEO David Shanks sent Barnes & Noble’s then-CEO Steve Riggio an e-mail reading in part,
“Random House has chosen to stay on their current model and will allow retailers to sell at whatever price they wish…I would hope that [Barnes & Noble] would be equally brutal to Publishers who have thrown in with your competition with obvious disdain for your welfare…I hope you make Random House hurt like Amazon is doing to people who are looking out for the overall welfare of the publishing industry.” '

While this is one CEO (of one of the two publishing companies that have not settled) writing to Barnes and Noble, it's an indication of an atmosphere of concern stated often (within the complaint) that the "conspiring publishers" needed more publishers to stay together on all this to get Amazon to agree to the Agency model and its higher, non-competitive pricing.

B&N's management did decide not to feature Random House in any future advertising, the complaint says. And most who follow this pricing war know that Apple refused Random House books a place in their iBookStore. Random House is said to be the largest U.S publisher of novels. Neither Apple nor B&N are "Gas 'N' Groceries on Route 19" stores taking defensive measures against giant Amazon. But that latter is Authors Guild President Scott Turow's most recent fantasy. I feel bad for the authors who are represented by this guy whose forte seems to be a mixture of fantasy and bad melodrama, when he refers to Amazon as the 'Darth Vader of publishing.'

And, as I said in late April, Turow even refers to Apple as "a minor player in the realm of books" (the minor road-store that could, in one day, successfully encourage a jacking-up of e-book prices an average 50% (to $20 at the high-end), nation-wide, on new books, and even deny Random House space for its e-books because RH would not cooperate on the Agency model. Yep, Apple's just a small store hoping to get its size 3 foot in the publishing door.

The Club
When discussing what I'd deem normal book business practices of 'windowing' or staggering different releases of a book, if not done in lock-step, the publishers "referenced themselves in one email as ‘the Club!’" That was in connection with windowing discussions, and, as Owen says, not agency pricing discussions with Apple. But a club seldom calls itself that over one small facet of whatever brings them together as co-members, but the label does tend to speak to group focus of some type, in this case having to do with e-book pricing.

MANY interesting points are made in this piece that explains what is happening here, Mr. Jones, step-by step. Fascinating read, because I remember hearing about all this as it was happening and then it all tended to fade and blend together, but she [Jane] lays it all out, in no-nonsense manner.
I'll just quote the opening paragraph from her huge list of info-points with explanations of what some of the actions described indicate.

' Collectively the Big 6 account for approximately 60% of all revenue generated from print titles sold in the U.S. and 85% of all revenue generated from the sale of NYT Bestsellers.
In 2009, the publishers’ market share broke down as follows: Random House (17.5%), Penguin (11.3%), Hachette (10%), HarperCollins (9.8%), Simon & Schuster (9.1%), and Macmillan (5.4%) '

So, if you're interested in what is essentially a detective story with all the pieces starting to come together, go to Dear Author for the step-by-step guide.

Earlier and related:TIMELINE: Ebook Pricing Wars - what DOJ would have seen.

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